High drama, and scary outcomes surrounding the showdown of the financial rescue package has investors on the edge of their seats. Like I said a few days ago, I don't know why the politicians are making a big deal over it. Passage of the bill should be an easy decision. After all, congress just approved $25 billion in low-interest loans for U.S. automakers, and threw another $602 billion to the departments of defense, homeland security and veterans affairs.
Our government has wasted billions fighting the war in Iraq, so throwing the U.S. financial system a lifeline shouldn't be that tough to pass. The war in Iraq is clearly about oil, and not weapons of mass destruction or fighting terrorism. Remember, follow the money!
Speaking of money, where is all the money going from the sale of the Iraqi oil? Iraqi officials estimated that Iraq's oil revenues are around $60 billion, with 80 percent of the revenues going for the United Nations Oil for Food Program. This is insane.
So, are you wondering who is making these decisions behind the scenes? The men behind the curtain of course!
In March, Senators Carl Levin (D), and John Warner (R) estimated that Iraq will realize "at least $100 billion in oil revenues in 2007 and 2008."
In any event, passage of the rescue package will free up bank balance sheets, and allow the flow of funds to continue between banks and businesses. The biggest problem on bank balance sheets has been the pricing of derivative instruments which cannot be valued since there is no longer a secondary market to trade them, or price them. Many of these instruments are worth something, some are worth much more than their current reported value, and some are worthless. The rescue package will give the market time to value these instruments fairly.
The financial situation in the U.S. is clearly causing panic in America. So much so that the U.S. Mint suspended sales of 1 oz gold coins because of a surge in demand- Reuters
With all the concerns, panic, turmoil, over the U.S. financial system, the natural instinct is to run, hide and hoard. A true blue contrarian looks at the seriousness of this grave situation as a buying opportunity.
I realize it's tough. It's like jumping off an 80 story building, and after passing the 40th floor you say, "so far, so good." As long as you don't buy equities on margin, and allows keep an abundance of cash for a rainy day, investing during these turbulent times can be a bargain hunters dream.
As we tiptoe into October, we are going to tiptoe back into oil. This time however we are going to use an ETF commoditiy fund.
NEW BUYS:
DBE: PowerShares DB Energy
Holdings:
Brent Crude (Fut): 22.98%
Gasoline Rbob (Fut): 22.98%
Heating Oil (Fut): 24.88%
Natural Gas (Fut): 9.66%
Wti Crude (Fut): 23.08%
NEW SELLS:
SLX: Market Vectors Steel Index Fund
Here are our Top 10 ETF's for the week of September 29nd:
1) DBA: Powershares DB Agriculture Fund
2) EWZ: Brazil Index
3) DBE: PowerShares DB Energy
4) FXF: Currency Shares Swiss Franc Trust
5) EEB: Claymore ETF BNY BRIC
6) DDM: Ultra Dow 30 Proshares ETF
7) KBE: KBW Bank ETF- Not Rated
8) IYF: iShares Dow Jones US Financial Sector
9) PGJ: PS Golden Dragon China Fund
10) SSO: ProShares Ultra S&P500 Trust
After the November elections, I am expecting our commodity and BRIC holdings to rebound sharply.
In the Dynamic Growth Fidelity Select portfolio, we are adding the Fidelity Select Natural Resources (FNARX) fund, and selling the Fidelity Select Wireless (FWRLX) fund.
Here are our Top 10 Fidelity Sector Funds for October 2008
1) FSCHX: Chemicals
2) FSMEX: Medical Equipment
3) FSCGX: Industrial Equipment
4) FCYIX: Industrials
5) FSPTX: Technology Portfolio
6) FSCSX: Computers & Software
7) FSCPX: Consumer Discretionary
8) FNARX: Natural Resources
9) FSRBX: Banking
10) FSVLX: Home Finance
NEW BUYS:
FNARX: Natural Resources
NEW SELLS:
FWRLX- Wireless
The Week in Review:
The stock market was held hostage most of the week over news events surrounding the financial rescue package.
J."Potter" Morgan few in and scooped up what was left of Washington Mutual's dead carcass.
The Banker, Mr. Potter, from the movie "It's a Wonderful Life"
J."Potter" Morgan, in true vulture like fashion paid pennies on the dollar for WaMu's deposits.
Research In Motion reported disappointing earnings, and the stock took a 27% haircut.
Select financials looked strong (JPM, WFC, BAC), while Wachovia (WB) took a hit in sympathy with the failure of Washington Mutual.
Energy stocks are stabilizing while consumer cycles remained soft.
After peaking at 42 on Thursday, September 18th, the VIX index closed at 34.74. I am not ruling out the possibility of one more sell-off and re-test of these levels over the next several weeks. Another spike of the VIX could mark the bottom of this bear cycle.
Some believe that politicians want to reach a deal on the rescue package before trading begins in the Asian markets. If so, look for a pop in opening trading in New York on Monday.
For the Week:
INDU :11,143.13/ -77.83
SPX : 1,213.27/ -29.05
COMP: 2,183.34/ -72.54
-Gold closed at $888.50/oz +23.80 for the week. Last week gold closed at $864.70, and was trading at $764.50 two weeks ago.
-The Commodities CRB Index closed at 364.57, up from 359.58 last week, and up from 360.01 two weeks ago.
-Crude Oil closed at $106.89/bbl up from $102.75 last week, and up from $101.25 two weeks ago..
-The U.S. Dollar closed at 76.99 down from 77.67 last week, and down from 78.98 two weeks ago.
We raised our allocations last week by 5% across the board when the DJIA dropped below our 11,300 target. Aggressive, and Moderately Aggressive portfolios should have added another 5% to their allocations when the DJIA broke the 10,600 level on Thursday. Moderate, Moderately Conservative, and Conservative investors are not advised to get fully invested unless the DJIA breaks below the 10,000 mark.
Our current asset allocation is as follows;
80% Equities: (Normally 95%) Aggressive
70% Equities: (Normally 80%) Moderately Aggressive
55% Equities: (Normally 60%) Moderate
35% Equities: (Normally 40%) Moderately Conservative
15% Equities: (Normally 20%) Conservative
